Previous internationalization studies have focused on the entry modes employed by multinational f... more Previous internationalization studies have focused on the entry modes employed by multinational firms but have not considered the contractual heterogeneity that underlies each mode. Examining these contractual details is important since the firm may be able to obtain some of the benefits typically associated with one entry mode while selecting another. In the case of international mergers and acquisitions (M&A), a key contractual variable is whether the parties agree to a performance-contingent payout structure, which can mitigate the risk of adverse selection. In this paper, we examine the antecedents of contingent payouts in the form of earnouts and stock payment. The results indicate that firms lacking international and domestic acquisition experience turn to contingent payouts when purchasing targets in high tech and service industries. Firms tend to avoid contingent payouts in host countries with problems with investor protection and legal enforceability.
Despite the rich set of theories that have developed on international joint ventures (IJVs), litt... more Despite the rich set of theories that have developed on international joint ventures (IJVs), little is known about what theoretical criteria senior executives actually incorporate in their judgments of IJV opportunities and partners. Empirical studies have often applied individual theories in a particularistic fashion, rather than recognizing the different theoretical perspectives that boundedly-rational executives may incorporate into their decision models. In this article, we combine decision criteria associated with multiple theories rooted in organizational economics to investigate how top executives process information on IJV opportunities in China. Using an established experimental technique known as policy capturing, we examine how executives cognitively weigh criteria from four prominent theories when making initial assessments of IJVs (i.e., the resource-based view, transaction cost economics, information economics, and real options theory). Our arguments and findings on executives' IJV decision models contribute to decision-making research on alliances and IJVs in China.
Bringing corporate governance to international joint ventures
Global Strategy Journal, 2011
ABSTRACT Large gaps appear to exist between the evolving corporate governance practices of organi... more ABSTRACT Large gaps appear to exist between the evolving corporate governance practices of organizations and those of international joint ventures (IJVs). Some of these gaps might well be appropriate given some of the unique features of IJVs, while others might require new consideration and attention by organizations engaged in alliances. The expansive literatures on corporate governance and IJVs have developed separately from one another, and there are important opportunities to combine them. We argue that a need exists for a new generation of IJV governance research that considers IJVs' boards of directors as well as other dimensions of governance. We highlight some research opportunities that are illustrative for the research agenda that we are calling for that builds bridges between the literatures on corporate governance and IJVs.
Prior research over several decades has catalogued many positive motives underlying firms' decisi... more Prior research over several decades has catalogued many positive motives underlying firms' decisions to engage in joint ventures and other forms of alliances. In this empirical analysis, we investigate whether agency problems brought about by the separation of ownership and control also stimulate the development of firms' joint venture portfolios. By focusing on joint ventures, as opposed to diversification in general or acquisitions, we address the recent debate on agency theory's domain. Results from a sample of U.S. manufacturing firms' alliance portfolios offer supporting evidence, and comparable findings are obtained for international and domestic joint ventures. Agency hazards are also found to bring about extensions of firms' nonequity alliance portfolios in both the international and domestic settings.
This paper investigates how firms' decisions to outsource or internalize production affect their ... more This paper investigates how firms' decisions to outsource or internalize production affect their technological performance. While several popular arguments and some anecdotal evidence suggest a direct association between outsourcing and technological performance, the effects of firms' governance decisions are likely to be contingent upon several specific attributes underlying a given exchange. This paper first demonstrates how standard performance models can improperly suggest a positive relationship between firms' outsourcing decisions and their technological performance. Models that account for firm-and transaction-specific features are then presented, which indicate that neither outsourcing nor internalization per se result in superior performance; rather, a firm's technological performance is contingent upon the alignment between firms' governance decisions and the degree of contractual hazards.
This paper investigates the occurrence and determinants of post-formation governance changes in s... more This paper investigates the occurrence and determinants of post-formation governance changes in strategic alliances, including alterations in alliances' contracts, boards or oversight committees, and monitoring mechanisms. We examine alliances in the biotechnology industry and find that firms' unique alliance experience trajectories affect the likelihood of such ex post adjustments in these partnerships. Transactional features such as the alliance's scope, its division of labor, and the relevance of the collaboration to the parent firm also bear upon alliances' dynamics. We discuss the implications of these findings and how they complement prior research focusing on alliance design or termination at opposite ends of the alliance life cycle.
In contrast to prior studies examining strategic alliances as discrete governance structures (e.g... more In contrast to prior studies examining strategic alliances as discrete governance structures (e.g., alliances vs. M&A, equity vs. non-equity agreements), we investigate their particular contractual features. The analysis examines the dimensionality of the contractual complexity construct and investigates the determinants of firms' adoption of various contractual provisions. We find two underlying dimensions of contractual complexity, based upon the enforcement and coordination functions of different contractual provisions. The evidence reveals that firms' usage of particular contractual provisions is a function of asset specificity as well as whether the alliance's duration is pre-specified or open-ended. The findings also speak to the debate surrounding the roles of prior ties and trust for alliance governance. Firms that have collaborated with each other in the past are not less likely to negotiate enforcement provisions; rather, repeat collaborators are less likely to adopt contractual provisions that are informational in nature and are geared to the coordination of the alliance.
The authors gratefully acknowledge the helpful comments of Janet Netz and the anonymous reviewers... more The authors gratefully acknowledge the helpful comments of Janet Netz and the anonymous reviewers on earlier drafts of this paper. Partial funding for this project was provided by the Purdue Research Foundation.
This study investigates acquisitions of small manufacturing firms and compares private and public... more This study investigates acquisitions of small manufacturing firms and compares private and public targets. We develop the argument that private targets tend to involve higher transaction costs in the presence of adverse selection problems than their public counterparts. Consistent with predictions, the empirical evidence indicates that bidders choose to acquire public rather than private targets when acquiring young firms and when engaging in inter-industry transactions. Acquirers also tend to avoid private targets that have significant intangible assets and have not signaled the value of these resources through other means such as collaborative agreements. The results shed light on the benefits of being public and the decision-making criteria employed by acquiring organizations.
We draw upon evolutionary economics and transaction cost economics to examine how alliance experi... more We draw upon evolutionary economics and transaction cost economics to examine how alliance experience accumulation at the parent firm level and alliance features at the transaction level jointly and interactively shape the favorability of research alliances' termination outcomes. Fifteen percent of the terminated alliances we examined were successful, 34% were failures, and 51% experienced an intermediate outcome in the form of contract expiration or unilateral withdrawal by a partner. We find that the effect of partner-specific experience on the favorability of termination outcomes is greater for non-equity alliances than for equity structures affording stronger formal governance mechanisms. Other forms of experience such as general alliance experience or prior alliances in the same technological area as the focal agreement have no such favorable consequences for alliance termination. The findings also indicate that alliance complexity adversely influences firms' termination outcomes in alliances. We therefore find evidence in partial support of both evolutionary and transaction cost based arguments for the explanation of termination outcomes in research alliances.
In this paper, we study someof the conditions under which “superstitious learning” phenomena (Lev... more In this paper, we study someof the conditions under which “superstitious learning” phenomena (Levitt and March, 1988) become problematic in organizations, and we identify a set of boundary conditions for these effects. In particular, we argue that the tacit accumulation of experience might exacerbate the problem, but that the heterogeneity in the stock of prior experience, as well as more deliberate learning processes in the form of knowledge articulation and codification, can be beneficial inreducing or even eliminating the effects of superstitious learning. We test these arguments in the context
This paper applies evolutionary economics reasoning to the strategic alliance context and examine... more This paper applies evolutionary economics reasoning to the strategic alliance context and examines whether and how routinization processes at the partnering-firm level influence the performance of the cooperative agreement. In doing so, it introduces the concept of interorganizational routines, defined as stable patterns of interaction among two firms developed and refined in the course of repeated collaborations, and suggests that partner-specific, technology-specific, and general experience accumulation at the partnering-firm level influence the extent to which alliances result in knowledge accumulation, create new growth opportunities, and enable partnering firms to achieve their strategic objectives. We also consider how governance design choices at the transaction level shape the effectiveness of interorganizational routizination processes. Based on a sample of 145 biotechnology alliances, we find that only partner-specific experience has a positive impact on alliance performance, and that this effect is stronger in the absence of equity-based governance mechanisms. We interpret these results to support the role of interfirm coordination and cooperation routines in enhancing the effectiveness of collaborative agreements.
This article suggests a rationale for firm risk management that has been largely ignored in finan... more This article suggests a rationale for firm risk management that has been largely ignored in financial economics literature. It presents an argument for harnessing the influence of a company's stakeholders who, whether as employees, suppliers or customers, make a valuable investment specific to the company. Such investments are crucial for a firm's competitive advantage, yet because they are firm-specific and therefore cannot be transformed or transferred, stakeholders are often concerned about the risks involved in making them. A company's efforts to manage risk can therefore persuade stakeholders to make even greater firm-specific investments, bringing benefits to shareholders and stakeholders alike. k
This article analyses how firms build their capabilities for alliance portfolios. We investigate ... more This article analyses how firms build their capabilities for alliance portfolios. We investigate different solutions that are adopted across portfolio sizes, and whether the adoption of these solutions explains alliance portfolio performance. Our findings illustrate which solutions practitioners should consider implementing when expanding their alliance portfolio, and which can help enhance their portfolio performance. Our conclusions are based on a sample of 192 firms managing over 3,400 strategic alliances and seven expert interviews. We analyse the adoption of 14 distinct alliance practices in four solution categories. Our results reveal whether and when functional and staffing (e.g. alliance manager, alliance department), tool-based (e.g. intranet, codification of best practices), training (e.g. in-house, external training) and third party (e.g. consultant, mediators) solutions help firms transition successfully between small, medium, and large alliance portfolios, and to what extent they are associated with alliance success. Rules of engagement for successful alliance portfolio management are discussed.
The Anselmo Rubiralta Center for Globalization and Strategy aims to be an international benchmark... more The Anselmo Rubiralta Center for Globalization and Strategy aims to be an international benchmark for companies, universities, business schools and governments. It promotes the exchange of ideas in the area of globalization and international strategy.
ABSTRACT This study draws from the corporate governance literature to investigate the implication... more ABSTRACT This study draws from the corporate governance literature to investigate the implications of board involvement for international joint ventures (IJVs). We extend recent corporate governance research on the value of board involvement by investigating unique sources of complexity related to the nature of the IJV. We argue and find that board involvement can enhance the performance of IJVs, particularly for collaborations that are complex in nature due to their broad functional scope as well the level of market overlap between IJV parents. We complement recent research on joint venture control that has focused on the antecedents and types of control, as well as studies on formal (e.g. contractual safeguards and monitoring) and informal governance mechanisms (e.g. trust) by providing empirical evidence that IJV board involvement is valuable when directors undertake their control and coordination responsibilities. We advance corporate governance research by providing evidence that joint ventures possess several unique characteristics that shape the value of board involvement, thereby showing that applications of corporate governance theory to joint ventures are useful, but should be made with care.
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Papers by Jeffrey Reuer